Iogen Corp. is gearing up for a shift out of the laboratory and into the real-world production of ethanol.
Over the last few months the company has signed agreements with farmers for the right to buy 500,000 tonnes of straw for its first commercial scale, cellulose-based ethanol plant.
And just last week it received encouraging news about the possibility of securing an American government loan guarantee to build the plant in Idaho Falls, Idaho.
Both developments are key steps in moving the project from a $45 million demonstration plant in Ottawa to a $250 million commercial plant built somewhere in Canada or the United States.
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Last month at a U.S. wheat industry conference in Reno, Nevada, Iogen marketing director Maurice Hladik told reporters the decision on whether the plant will be located north or south of the 49th parallel will likely boil down to which country is first to offer a loan guarantee for the project.
The U.S. gained some ground in that respect when the U.S. Senate environment and public works committee put together the first draft of the Reliable Fuels Act, which paves the way for a loan guarantee of up to $250 million US for cellulose-based ethanol projects.
It could take a full year before the bill is ready for a vote, but its existence turns the request for a government loan guarantee from an abstract concept into a tangible component of a proposed piece of legislation.
Hladik said it is now possible for the firm to get a funding commitment from government even before the bill becomes law.
“We’re in a better position for it to happen outside the bill,” he said.
While it is critically important, funding isn’t the only issue the firm has to consider when it comes to locating the plant. Another key is straw procurement.
Since January, Iogen has been signing contracts with farmers located within a 160 kilometre radius of Birch Hills, Sask., and Idaho Falls, Idaho, two of three potential locations for the ethanol plant. Field agents are being hired to initiate a similar contracting program in the third location in Vegreville, Alta.
“We’re very pleased with the progress of the campaigns so far,” said Iogen market analyst Patrick Girouard.
“Now we’re entering the home stretch as we get closer to our target of 800,000 tonnes per location within the next few months.”
The intent of the contracting program is to demonstrate to potential investors that the plant will have an ample supply of raw material at a reasonable price.
Producers have the option of signing a five-year agreement to supply straw in a windrow for $10 per tonne or they can tie the contract to the price of crude oil, which could mean getting anywhere from $7-$15 per tonne for their wheat and barley straw.
Iogen has four years to exercise its contract options. The company will trigger options in the region where the plant is built and let the others expire.
The plan is to begin construction on a facility some time in 2006, with ethanol flowing from the plant by 2008.
Girouard said while there’s no question a loan guarantee would add weight to a proposal, it won’t be the only factor that tips the scales one way.
“We also need community support. We also need the farmers on board.”
Over the next few months the contracting program will help determine which community has the biggest buy-in from local producers.
“If there is no straw, there is no plant,” he said.
A second round of contracting will be used to line up baling and trucking services for the ethanol plant.
